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Nuclear Standoff - Nuclear Breach

Federal failure to fulfill spent-fuel obligations creates expensive risks.

Fortnightly Magazine - December 2009

Overall, cash flow and liquidity management are critical functions at utilities now. For some, this means deep cost cuts and slashed dividends. Companies face significant challenges maintaining risk capital and ensuring liquidity.

Until such time as rate increases are forthcoming or revenue increases, many companies will remain barely investment grade. And debt imputations will cut into available risk capital. As dry casks continue to accumulate on plant sites, nuclear companies face continued exposure to SNF-related risk, effectively into perpetuity. Will circumstances change in the future, limiting their ability to add casks needed to store used fuel and thereby continue operating? Will additional challenges to liquidity arise as a result?

Some rating agencies think so. Moody’s and Standard & Poor’s routinely comment on the continued failure to resolve the SNF issue. As one recent S&P report observes, “Effective nuclear waste disposal and storage are crucial aspects in solidifying nuclear plants as viable resource alternatives on a large scale.” For those companies contemplating nuclear investments, S&P promised to closely monitor developments “to determine if, and when ratings should change to reflect the challenges ahead.”

With dry cask storage capacity capable of supporting up to 60 years of operation, those contemplating building the next generation of nuclear plants assume DOE won’t provide custodial and disposal services, perhaps a prudent assumption given the forecasted federal deficits. Until the federal government resolves the SNF management issue, however, the industry will continue facing risks that translate directly into lost shareholder value and higher customer rates. As S&P observes, “It is contradictory for the federal government to provide incentives for new nuclear generation on one hand, [while] not delivering on its commitment to provide long-term storage on the other.”